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Next week on the stock market

What to expect from a selection of FTSE 100, FTSE 250 and selected overseas shares reporting next week.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please
seek advice. If you choose to invest the value of your investment will rise and fall, so you could get
back less than you put in.

Sophie Lund-Yates, Equity Analyst

7 May 2020

As has become the market norm, we may well get some unscheduled updates too and don’t forget the below dates are subject to change.

Among FTSE 100, FTSE 250 and selected other companies scheduled to report next week (although please remember these dates are subject to change, especially at the moment):

At full year results in March Morrison reported a 0.8% drop in like-for-like (LFL) sales and, a 1.1% decline in revenue. We think it’s reasonable to assume coronavirus panic buying will have led to a brighter sales performance in the group’s first quarter.

However, we’ll be keeping an eye on how Morrison has measured up compared to its rivals. Tesco said sales rose as much as 30% in the first “few weeks” of the outbreak, and the uplift in grocery sales in the seven weeks to 25 April was 12% for Sainsbury. In truth, all sales should even out in the future, but it will be interesting to see what stockpiling meant for Morrison’s sales.

We should also get an idea of any further plans to keep costs down and preserve cash flow. The uptick in sales means these will both need to be watched. The final thing to consider is online sales. Morrison has a smaller online operation compared to its peers, and we’d like to know if the huge increase in demand for online shopping has been a benefit, or if its footprint is still too small for any meaningful change to be seen.

The internet is among the last things most of us will want to give up during a lockdown or a recession. In our opinion, Vodafone’s broadband and mobile phone contracts should provide a reliable revenue stream whatever happens in the next 18 months. So why have the shares fallen so heavily since the start of the year? We think there’s one big reason and a few ancillary ones.

The big one is debt. On 30 September last year Vodafone had €48bn in net debt. To put that in perspective, before the coronavirus pandemic disrupted our lives Vodafone expected to generate €5.4bn in free cash this year before spectrum costs. Asset sales are expected to help bring the debt down, but it will be interesting to see whether Vodafone still thinks it can get reasonable prices for its assets in the current market.

However, while the key revenue engines are likely to keep running, the COVID-19 pandemic is probably disrupting the business in other ways. Maintenance work may be impeded, in-store sales for new phones (and therefore contracts) will be lower than usual and squeezed household finances may push people away from pricier contract add-ons. We expect Vodafone to have managed reasonably well, but management’s plans, especially regarding the 5G roll out, will likely have been interrupted.

We already know Centrica’s feeling pressure from the pandemic, so much so it cancelled its final dividend and withdrawn cash flow guidance for the year ahead. Next week is an important step in understanding just how significant the impact is, especially as Centrica was hardly firing on all cylinders before the crisis.

We’ll be looking out for more detail on how lockdown is changing our energy demands. Centrica had already started to see an increase in residential demand, but that hadn’t been enough to offset the decline from Business customers. With the UK seeing the lowest levels of business activity on record in April, that doesn’t bode well.

Plans to shift the E&P and Nuclear businesses have been shelved, at least for now. But that means the group’s feeling the fallout from the oil price crash as well. Centrica’s looking to soften the blow with cost savings, but that still leaves the Upstream division cash flow neutral this year at best.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek
advice. If you choose to invest the value of your investment will rise and fall, so you could get back
less than you put in.

Our analysts take a look at which share sectors are faring better than others in the current crisis.

Equity Research Team

23 Apr 2020 | 8 min read

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